House committee approves climate change bill

The oil and gas industry joined other industries that responded critically after the US House Energy and Commerce Committee approved a bill to address global climate change by instituting a US cap-and-trade system.

May 22nd, 2009

Nick Snow
Washington Editor

WASHINGTON, DC, May 22 -- The oil and gas industry joined other industries that responded critically after the US House Energy and Commerce Committee approved a bill May 21 to address global climate change by instituting a US cap-and-trade system.

The committee beat the Memorial Day holiday weekend deadline that chairman Henry A. Waxman (D-Calif.) set by one day when it approved HR 2454 by 33 to 25 votes.

"This bill, when enacted into law this year, will break our dependence on foreign oil, make our nation the world leader in clean energy jobs and technology, and cut global warming pollution," Waxman said following the vote.

The bill's co-sponsor, Edward J. Markey (D-Mass.) described the bill as "bold action to preserve good paying jobs here in American and preserve our planet." Market is chairman of the committee's Energy and Environment Subcommittee.

Markey said he believes more was accomplished in 8 weeks toward energy independence than the US has accomplished in 8 years.

But HR 2454 immediately drew fire from leading oil and gas associations.

American Petroleum Institute Pres. Jack N. Gerard said, "While the bill has laudable environmental and economic goals, its inequitable system of allocations remains intact and, if enacted, would have a disproportionate adverse impact on consumers, businesses and producers of gasoline, diesel fuel, jet fuel, crude oil and natural gas."

National Petrochemical and Refiners Association Pres. Charles T. Drevna said,"While this may appear, in the short term, to be a monumental political success, ultimately it represents nothing more than an abject policy failure. The whole notion of capping carbon dioxide emissions, issuing allowances disproportionately to favored industries, and hoping that the false promise of 'green jobs' could gloss over the current and real jobs that will be lost should HR 2454 become law belies the complexity of fairly balancing energy and environmental policy."

'Neither wanted nor needed'
"The role of the federal government is not to choose winners and losers in the business sector," Drevna said. "Such policies, with the back of a hand, cast aside millions of hard-working Americans with the simple message that they and their livelihoods are neither wanted nor needed. Such policies fail consumers by effectively limiting individual preference and choice for vehicle and fuel type."

Waxman delayed marking up the bill, called the American Clean Energy and Security Act, by a week so changes could be made from its original version to secure enough votes for its passage. One of the most crucial changes came when Rick Boucher (D-Va.), chairman of the committee's Communications, Technology and the Internet Subcommittee, announced that he had reached an agreement with Waxman and Markey to preserve coal-related jobs, facilitate more coal production, and keep electricity rates affordable in his southwestern Virginia district and elsewhere where power comes from coal-fired plants.

"It is now inevitable that federal controls on greenhouse gases will be adopted," Boucher said as the bill's markup began on May 18.

"The [US] Supreme Court ended the debate on whether there would be controls when it effectively mandated 3 years ago that the [US] Environmental Protection Agency regulate greenhouse gas emissions unless the Congress regulates first," Boucher said."Virtually all interested parties, from the coal industry and electric utilities to the environmental community, would prefer that Congress adopt the regulations rather than have them be adopted by EPA."

Chief executives of some of the biggest US power companies have said that action to address global climate change now is essential.

"I understand the arguments against action on energy and climate with concerns focused on the economy," Duke Energy Corp. chief executive James E. Rogers told the US Senate Foreign Relations Committee on May 19.

"However, the reality is we can't afford not to act if we hope to compete and lead," Rogers said. "The right comprehensive energy and carbon legislation can provide not only the certainty and rules of the road by which we can plan, build, and compete; it will also protect consumers, help us advance efficiency and alternative technology efforts, and all while cleaning up the environment."

'Gasoline prices above $4/gal'
The problem is that HR 2454 doesn't fit Rogers's description, oil and gas industry leaders maintained.

API's Gerard said, "As a recent independent analysis shows, this inequitable approach, by itself, will produce additional unemployment, driving annual job destruction totals related to the legislation to more than 1 million. Another independent study projects job losses more than double this: up to 2.7 million net jobs lost annually, even with new green jobs created. According to one of these reports, an average family will pay an additional $1,500 a year for energy and 74% more for gasoline. Today, that would mean gasoline prices above $4/gal, an increase nearly equivalent to a 10-fold rise in the federal gasoline tax."

The bill also would compromise the ability of US refiners to compete with overseas oil product processors, Drevna indicated.

"Imports of refined products, not simply crude, could actually increase under HR 2454, thus impeding national energy security," Drevna said. "American refiners, who already face stiff foreign competition in the fuels markets, would be several disadvantaged with higher compliance costs under the Waxman-Markey scheme. Foreign refiners, whose facility emissions are obviously not address in HR 2454 and whose operating costs are much lower, would gain a distinct advantage over American businesses in the marketplace."

But the American Gas Association, which represents natural gas utilities, said the Energy and Commerce Committee took an important step when it passed the Waxman-Markey bill. The bill allocates emission allowances to local distribution companies to cover the carbon emissions of their residential, commercial, and small industrial customers, it noted. Gas utilities' residential and commercial customers would not be covered by the bill's carbon cap until 2016, it said.

In a fact sheet that it distributed following the vote, NPRA pointed out that US refiners must meet the earliest compliance mandate for fuels in 2013 while other sources would not be phased in until 2014. "Compared to other industries, domestic refiners receive a disproportionately low number of emissions allowances to meet HR 2454's requirements: just 2% to cover nearly half of the total US carbon dioxide emissions as covered in the bill," it said.

"Assuming a conservative carbon price of $26/ton with 2% of the emissions allowances, a domestic refinery with 100,000 bbl per day of capacity would have to spend roughly $330 million annually if it were required to purchase emissions allowances for the fuels it produced. Aggregated, these costs would total roughly $58 billion per year for the American refining community, and escalate over time as the cost of the program increases," NPRA continued.

Ability to compete worldwide
The American Chemistry Council said that while committee members made a number of positive changes in the bill, several key issues related to US energy-intensive manufacturers' ability to compete global still need to be addressed.

"Specifically, we are very concerned that the emissions allocation provision for trade vulnerable industries (Title VII, Section 782) treats energy-intensive industries differently from other US sectors," Cal Dooley, the group's president, said.

"The bill assigns a base a baseline year of 2005 for energy-intensives versus a flexible, multi-year base period for other sectors," Dooley said. "The year 2005 was a low-emission one for the chemical industry due to hurricane-related production disruptions, and the designation puts chemical makers at a disadvantage despite the significant greenhouse gas emissions reductions the industry has achieved over the past 2 decades."

"The bill also employs a different emission allowance schedule for energy-intensive industries as compared with other sectors, reducing allowances over time and unfairly depriving energy-intensive manufacturers of receiving more than 200 million allowances through 2021 at an estimated cost of more than $5 billion," Dooley added.

While the committee's vote on the bill largely followed party lines, not every Democrat supported it. Charlie Melancon (La.) said that he fully backed many of its aspects but still voted against it because of concerns about its potential impacts on Louisiana's energy workers and industries.

"South Louisianians want to reduce pollution in the air we breathe and the water we drink," Melancon said. "We want to slow or even reverse climate change. And we want our nation to become more energy independent. But we must do so in a way that won't threaten our offshore oil and gas industry, an industry that has provided good-paying jobs to hundreds of thousands of workers in south Louisiana for generations."

API's Gerard said, "There is time to get this right. As the bill moves to the full House, we ask lawmakers to look at all the consequences of the bill, consider the implications on ordinary Americans at a time of economic hardship, and come up with an equitable plan that will address global climate change and improve, not weaken, our nation's energy and economic security."

Contact Nick Snow at nicks@pennwell.com.

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